President Obama Delivers Somber Speech

Somber speech indicates economic woes, damage to international status of US; In a depression?


Today's inaugural speech by President Barrack Obama was relatively short and somber in it's tone. Obama spoke of our current economic situation and referenced our need to work together to solve the myriad of problems we face.

As he starts his term as president, Obama is faced with an economy that takes body blows everyday. On this day of a peaceful transition of power, the Dow Jones and the NASDAQ both fell over 5%.

While the continued loss of jobs and increasing unemployment indicates we are suffering, there is another labor trend under way that according to several sources has not happened since the Great Depression.

The labor trend we speak of is the increasingly common trend for employers to slash wages not only for executives, but for hourly and line management personnel.

Consider the following:

* AMD: 1100 jobs cut and salary cuts of 5% to 20% for remaining employees.
* Caterpillar: Cutting executives pay by 50%, up to 15% for non-executive employees.
* Hutchinson Technology: 5% salary cuts for remaining employees.
* Saks: Cutting 1100, says remaining employees will get no wage increases or 401(k) contributions for 2009.
* YRC Worldwide: 10% pay cuts for drivers, 15% pay cuts for non-union employees.
* FedEx: minimum 5% pay cuts for salaried personnel and managers, executive management have taken 20% pay-cuts. The company has suspended matching 401(k) contributions for all employees.

This obviously does not include the ten of thousands of smaller employers who have cut the number of hours for workers.

Locally, many independently owned businesses and restaurants have cut their hours which in effect reduces labor expenditures.

The lower wages leads to less consumption which leads to softer demand. Softer demand leads to lower prices.

The last time this happened en masse was during the 1930's.

Longtime readers of this site may note that exactly one year and three days ago we stated that we had entered a recession. 'Expert' economist verified our proclamation last month when they said that yes, we entered a recession in December, 07.

So are we in a depression now? We believe that while it is to early to proclaim this, if the economic indicators continue on their current trajectory, we could well find ourselves in a depression.

Let's hope the Obama administration, along with a strong bi-partisan effort, act quickly and smartly to avert a depression.